The August Philly Fed survey came in at +4.2, above the consensus of -2.0, up from -7.5 in July and follows the unexpected gain in the Empire survey seen on Monday. It’s the first positive reading since September ’08 and is at the highest level since November ’07. The data measures the direction of improvement, not the degree so don’t extrapolate that we are at November ’07 output levels. New Orders rose 6 points to +4.2. Backlogs rose 5 points but remain negative at -9.3. Employment rose by 12.4 points to -12.9. In a clear message that the inventory drawdown has run its course, inventories rose from -15.4 to +.3, the first positive number since September ’07, yes 22 straight months of declines. With the rebound in the data comes a bounce in both Prices Paid and Prices Received, both at the highest level since October. The 6 month outlook rose 5 points but is 3.3 points below the level seen in June. Net-net, the data confirms for now the 2nd half inventory/manufacturing recovery hopes. The stock market however has discounted this and will need confidence that the rebound is something that can be sustained into 2010 in order to see another leg higher.
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